China inflation cools amid signs growth is stabilizing

China’s inflation was close to the slowest pace in two years in September, giving the government room to ease policies should the economy deteriorate further after import data pointed to weakness in domestic demand.

Consumer prices rose 1.9% from a year earlier while the producer-price index dropped 3.6%, the National Bureau of Statistics said on its website today. China’s imports increased 2.4% from a year earlier while overseas shipments climbed 9.9%, the customs administration said on Oct. 13.

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A report this week may show the nation’s expansion slid to 7.4% in the third quarter from a year earlier, the seventh straight deceleration, underscoring International Monetary Fund warnings that weakening growth in developed economies is spreading to emerging markets. At the same time, there are signs China’s economy is stabilizing after exports exceeded estimates in September and money supply grew at the fastest pace in 15 months.

“Muted inflation pressure will provide more room for the government to introduce additional policy easing or stimulus measures,” said Lu Ting, chief China economist at Bank of America Corp. in Hong Kong. “The top task for the central bank now is to prevent growth from slowing further while stemming the rebound in home prices, which is the major constraint for easing in 2012.”

In China, the Shanghai Composite Index fell 0.5% at the 11:30 a.m. local-time break. The yuan was little changed at 6.2676 per dollar, close to a 19-year high.

China has refrained from implementing stimulus on the scale of the 4 trillion yuan ($586 billion at the time) package it unleashed at the end of 2008 during the global financial crisis, confining its response to measures such as two cuts in interest rates, reductions in bank reserve requirements, tax decreases, higher spending on social welfare and accelerated investment approvals.

At an IMF meeting in Tokyo on Oct. 13 and 14, People’s Bank of China Deputy Governor Yi Gang said that while policy makers will provide “appropriate” stimulus to stabilize growth, the central bank’s main task is price stability and warned that bubble risks remain in housing markets in major cities. China’s Xinhua News Agency cited Yi as saying that the nation has “relatively large room” for use of monetary and fiscal policies compared with some countries.

Credit Agricole CIB says the increase in consumer prices could quicken to 4% by year-end on food costs, while Standard Chartered Plc projects a pace as high as 5% next year.

The economy probably grew 7.4% from a year earlier, the weakest expansion since the first quarter of 2009, according to the median forecast in a Bloomberg survey ahead of the report due on Oct. 18. Alcoa Inc., the largest U.S. aluminum producer, cut its forecast for global consumption of the metal on slowing Chinese demand.

Retail Sales

Elsewhere in Asia today, Australian home-loan approvals rose in August from a month earlier by the most since November 2011 as buyers responded to the central bank’s interest-rate cuts.

Singapore’s retail sales probably rose in August from a year earlier for the first time in three months, according to economists surveyed by Bloomberg News.

Retail sales in the U.S. probably rose 0.8% last month, according to the median forecast of economists surveyed by Bloomberg News. Manufacturing in the New York region probably shrank 4% in October, economists in a separate survey predicted.

M2, China’s broadest measure of money supply, climbed 14.8% last month, a central bank report showed on Oct. 13, even as lending was less than analysts’ estimates.

The government says it’s aiming for full-year inflation of about 4% this year and economic growth of 7.5%. Five out of 40 economists surveyed by Bloomberg News from Sept. 11 to Sept. 18 forecast the nation’s full-year expansion will slow to 7.5% from 9.3% last year.

The IMF last week cut its estimate for China’s economic growth this year to 7.8%, saying a “hard landing is a low probability.”

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